We were presented with several forecasts for the future of the UK economy in 2016, all differing slightly in their optimism. There were the gloomy predictions of the Remain campaigners—which led to George Osborne’s infamous ‘punishment budget’, and there were the more cheerful predictions from the Brexitiers. As it turned out, neither party was exactly correct.
The post-Brexit economy has not been left in tatters as many thought it would, but it is hardly at its strongest point either. With the Bank of England constantly revising its economic forecasts, the current economic climate can be summed up with one word: uncertainty.
Remarkably, however, the huge impact Brexit had on the value of the pound has actually proven to be an advantage for some industries involved in foreign investment, such as the international property market. Though predictions are difficult in this time of economic flux, the focus of many forecasts is one of the UK’s biggest property markets, offices in London and the South East.
How big is the London and south east office property market today?
An annual investment market report for 2016 review, published by esteemed property consultants Gerald Eve, revealed that the London and South East England office market made a huge amount of revenue last year. Among the most noteworthy transactions was the sale of 10 Hammersmith Road, sold by Brockton Capital to Tai United Holdings for a cool £103m, and the BP International Centre in Sunbury, sold to Spelthorne Capital for £355m.
Despite these astronomic figures, the report does not show 2016 to have been a good year for the market. Overall sales were down £3bn on 2015’s total—a 23% decrease. Though there are many broader factors behind this fall, Brexit is no doubt one of them.
How did Brexit impact the office property market?
The demand for serviced offices has grown by 31% in the UK since 2008, and it is only set to rise. The economic uncertainty that came after Brexit is likely behind this sector’s recent rise since companies often seek inexpensive workspace solutions to keep down costs.
Since serviced offices offer flexible leases and prime locations, SMEs in particular gravitate towards using them in times of economic strife to save them having to shell out for expensive long-term leases, or even the entire building. A building in Reading’s Green Park development, for example, sold for £583m in 2016, but a Green Park serviced office is available at a much smaller price point.
Since serviced office providers can purchase office spaces once to rent them out forever to companies which are increasingly preferring serviced solutions, fewer large property transactions are taking place, and therefore the market is bringing in less money.
Even if a company did want to buy commercial property in the traditional way, the unstable economy has led major lenders, including Singapore bank UOB, to end their commercial property loan programs. This made it far more difficult for businesses to invest in UK commercial real estate for the second half of 2016.
There are other Brexit-related fears, too. In the wake of Britain’s vote to leave the EU, many speculators worried that big businesses set up in top London offices would jump the channel and set up shop in Frankfurt or Paris, where they’d be guaranteed access to the single market.
So far, this is yet to happen. The biggest finance firms still have their headquarters in London, but did this moment of worry have an effect on the commercial property market? According to Gerald Eve it did. Their property investment analysis shows that the EU referendum “slowed down” transactions in Q2 and Q3, but that by Q4 things were mostly back on track.
This steady recovery bodes well for the South East commercial property market going forward.
How will London offices sell in 2017?
Despite initial setbacks in sales thanks to Brexit, it seems in 2017 the property market will start off on a good foot. In Gerald Eve’s 2017 predictions, they suggest that though political decisions will still have an effect on economics, investors will warm to commercial property once again as they see that it can still offer stability in this turbulent time.
The weaker pound, too, will likely encourage overseas developers and investors to buy up English office space. However, sectors affected by Brexit are not likely to expand or relocate as much over the next few years, until the terms of the UK’s withdrawal from the EU become clearer.
Gerald Eve ends its speculation with a prediction about the changing face of London. As rent prices continue to rise in the city’s suburbs, office capital values are likely to grow, making commercial development look increasingly attractive to buyers. Perhaps the office property market will survive Brexit after all.
There is of course another factor, mentioned briefly at the beginning of this article—Brexit.
How did Brexit impact the office property market?
In the wake of Britain’s vote to leave the EU, many speculators worried that big businesses set up in top London offices would jump the channel and set up shop in Frankfurt or Paris, where they’d be guaranteed access to the single market.
So far, this is yet to happen. The biggest finance firms still have their headquarters in London, but did this moment of worry have an effect on the commercial property market? According to Gerald Eve it did. Their property investment analysis shows that the EU referendum “slowed down” transactions in Q2 and Q3, but that by Q4 things were mostly back on track.
This steady recovery bodes well for the South East commercial property market going forward.
How will London offices sell in 2017?
Despite initial setbacks in sales thanks to Brexit, it seems in 2017 the property market will start off on a good foot. In Gerald Eve’s 2017 predictions, they suggest that though political decisions will still have an effect on economics, investors will warm to commercial property once again as they see that it can still offer stability in this turbulent time.
The weaker pound, too, will likely encourage overseas developers and investors to buy up English office space. However, sectors affected by Brexit are not likely to expand or relocate as much over the next few years, until the terms of the UK’s withdrawal from the EU become clearer.
Gerald Eve ends its speculation with a prediction about the changing face of London. As rent prices continue to rise in the city’s suburbs, office capital values are likely to grow, making commercial development look increasingly attractive to buyers. Perhaps the office property market will survive Brexit after all.
